Asset scheme exit rumours boost RBS

Royal Bank of Scotland shares surged amid reports it is holding talks to secure an early exit from the Government’s toxic asset insurance scheme.

Part-nationalised RBS, which is 83% owned by the taxpayer, saw shares leap 6% as speculation suggested it was working on plans to pull out of the Asset Protection Scheme (APS) at the end of this year.

The group has just paid its second instalment in fees for the APS cover, paying £700 million until the end of 2011 and taking the total forked out so far to £2.1 billion. It is tied in to a minimum fee of £2.5 billion, but it is thought the group may decide to withdraw to avoid the next payment in January 2012 even if it has to forfeit £400 million to top up fees paid.

The APS was introduced in 2009 to insure risky bank assets and help restore confidence after the financial crisis.

Lloyds Banking Group, which is 41% taxpayer owned, avoided taking part by tapping investors for cash instead to bolster its balance sheet.

But RBS took part in the APS, putting in a mammoth £280 billion of assets at the start.

Investors reacted warmly to the prospect of RBS exiting the scheme early, although the bank declined to comment. The scheme is seen as having fulfilled its purpose and of having little benefit going forward.

RBS must shoulder the first £60 billion of losses and its total net loss is thought to be below this as bad debts reduce and as it shrinks the size of the insured portfolio. The APS does not also cover all of RBS’s exposures, with much of its Irish liabilities not included in the scheme – seen as a more pressing issue for the bank.

Analysts at JP Morgan Cazenove said: “In terms of what it was meant to do, the scheme has been successful – whilst the company may not draw down on the insurance, we think that it has played a significant role in adding confidence to the sector over the past two years. At this stage however it appears redundant.”

They added: “We would see this as a positive for sentiment, as it would make RBS cleaner for the ultimate sale of the Government’s stake.”